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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition and results of operations should be read together with our audited financial statements and related notes and other financial information included elsewhere in this Annual Report on Form 10-K.

In addition to historical financial information, this discussion and other parts of this report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, based upon current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part II, Item 1A below. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results and events to differ from those anticipated.

These statements are based upon information available to us as of the date of this Annual Report on Form 10-K, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), is provided to supplement the audited financial statements and the related notes in Part II - Item 8 of this Annual Report on Form10-K. We intend for this discussion to provide you with information that will assist you in understanding our financial statements, the changes in key items in those financial statements from year to year and the primary factors that accounted for those changes. Data for the years ended December 31, 2021 and 2020 has been derived from our audited financial statements included in this Annual Report on Form 10-K.

Overview

We are a leading data-driven diagnostic solutions company leveraging state of the art technologies with our proprietary AI platform to discover, develop, and commercialize solutions for clinical unmet needs, with a primary focus in lung disease. By combining a technology multi-omic approach with a holistic view of the patient’s disease state, we believe our solutions provide physicians with greater insights to help personalize their patient’s care and meaningfully improve disease detection, evaluation, and treatment. Our unique approach to precision medicine provides timely and actionable clinical information, which we believe helps improve overall patient outcomes and lowers the overall healthcare cost by reducing the use of ineffective and unnecessary treatments and procedures. In addition to our diagnostic tests, we provide biopharmaceutical companies with services that include diagnostic research, clinical trial testing, and the discovery, development, and commercialization of companion diagnostics.

Our core belief is that no single technology will answer all clinical questions that we encounter. Therefore, we employ multiple technologies, including genomics, transcriptomics, proteomics, and radiomics, and leverage our proprietary AI-based Diagnostic Cortex® platform to discover innovative diagnostic tests for clinical use. The Diagnostic Cortex is an extensively validated deep learning platform optimized for the discovery of diagnostic tests, which we believe overcomes standard machine learning challenges faced in life sciences research. Our data-driven and multi-omic approach is designed to enable us to discover diagnostic tests that answer critical clinical questions faced by physicians, researchers, and biopharmaceutical companies.

We continuously incorporate new market insights and patient data to enhance our platform through a data-driven learning loop. We regularly engage with our customers, key opinion leaders, and scientific experts to stay ahead of the rapidly evolving diagnostic treatment landscape to identify additional clinical unmet needs where a diagnostic test could help improve patient care. Additionally, we incorporate clinical and molecular profiling data from our commercial clinical testing, research studies, clinical trials, and biopharmaceutical customers or academic partnerships, to continue to advance our platform. We have over 150,000 samples and data in our biobank, including tumor profiles and immune profiles, which are used for both internal and external research and development initiatives.

We have commercialized eight diagnostic tests which are currently available for use by physicians. Our Nodify XL2 and Nodify CDT tests, marketed as part of the Nodify Lung Nodule Risk Assessment testing strategy, assess the risk of lung cancer to help identify the most appropriate treatment pathway. We believe we are the only company to offer two commercial blood-based tests to help physicians reclassify risk of malignancy in patients with suspicious lung nodules. Our GeneStrat ddPCR, GeneStrat NGS, and VeriStrat tests, marketed as the IQLung testing strategy, are used following diagnosis of lung cancer to measure the presence of mutations in the tumor and the state of the patient’s immune system to establish the patient’s prognosis and help guide treatment decisions. The GeneStrat targeted tumor profiling test and the VeriStrat immune profiling test now have a less than 36-hour average turnaround time, down from the previous 72-hour average turnaround time, providing physicians with timely results to facilitate treatment decisions. In response to the COVID-19 pandemic, through our partnership with Bio-Rad, we commercialized the Biodesix WorkSafeTM testing program. Our scientific diagnostic expertise, technologies, and existing commercial infrastructure enabled us to rapidly commercialize two FDA EUA authorized tests, a part of our customizable program. Both diagnostic tests are owned and were developed by Bio-Rad and Bio-Rad has granted us permission to utilize both tests for commercial diagnostic services. Then U.S. Health and Human Services Secretary Azar

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declared a public health emergency for COVID-19 in February 2020 which justified the authorization of emergency use of diagnostic tests for the detection and/or diagnosis of COVID-19. The Bio-Rad SARS-CoV-2 ddPCR test and the Platelia SARS-CoV-2 Total Ab test have been granted FDA EUA pursuant to the current emergency declaration. The Bio-Rad SARS-CoV-2 ddPCR test was FDA EUA authorized on May 1, 2020, authorizing performance of the test in laboratories certified under CLIA to perform high complexity tests. The second test is the Platelia SARS-CoV-2 Total Ab test, which is an antibody test intended for detecting a B-cell immune response to SARS-CoV-2, indicating recent or prior infection. The Platelia SARS-CoV-2 Total Ab test was FDA EUA authorized on April 29, 2020. Medical products that are granted an EUA are only permitted to commercialize their products under the terms and conditions provided in the authorization. The FDA may revoke an EUA where it is determined that the underlying health emergency no longer exists or warrants such authorization, if the conditions for the issuance of the EUA are no longer met, or if other circumstances make revocation appropriate to protect the public health or safety, and we cannot predict how long the EUAs for the SARS-CoV-2 tests will remain in place. In addition to the seven tests currently available to physicians, the Company launched the GeneStrat NGSTM (NGS) test, our 72-hour blood-based NGS test, in November 2021 to a select group of physicians, with broad US launch in the first quarter 2022.

Prior to using the Bio-Rad SARS-CoV-2 tests as part of our testing program, we performed feasibility, verification, and validation studies, including developing software for process automation, sample accessioning, data management and reporting, all required to demonstrate the test operated as claimed by the manufacturer and as required by our certifying regulatory agencies for high complexity laboratory testing. We secured independent reference specimens run with EUA tests to validate these tests as fit for diagnostic use in our laboratories. Post-launch development support for these tests have included improvements in on-boarding new personnel, logistics of sample collection, sample receipt and data reporting, all required to support our testing program. Additional releases of the laboratory data management software are ongoing and planned for the foreseeable future.

Beginning in the quarter ended June 30, 2021, we began partnering with GenScript Biotech Corporation to commercialize the blood-based cPass SARS-CoV-2 Neutralizing Antibody testing as a service. The test is the first surrogate neutralizing antibody test with FDA EUA and uses ELISA technology to qualitatively detect circulating neutralizing antibodies to the RBD in the spike protein of SARS-CoV-2 that are produced in response to vaccination or previous SARS-CoV-2 infection.

These tests under the Biodesix WorkSafe testing program are utilized by healthcare providers, including hospitals and nursing homes, and are also offered to businesses and educational systems to assist in their back-to-work or back-to-school strategies. We have announced multiple partnerships for COVID-19 testing, and maintain an agreement with the State of Colorado to be one of the diagnostic companies to support widespread COVID-19 testing for the State. Additionally, we have overseen and managed onsite testing and validating testing for the Big Ten Conference athletic competitions through the term of our contract which expired on June 30, 2021.

In addition to the eight diagnostic tests currently on the market, we perform over 30 assays for research use as part of our laboratory services that have been used by over 50 biopharmaceutical companies and academic partners. All of our diagnostic testing is performed at one of our two accredited, high-complexity clinical laboratories in Boulder, Colorado and De Soto, Kansas.

Since our inception, we have performed over 500,000 tests and continue to generate a large and growing body of clinical evidence consisting of over 300 clinical and scientific peer-reviewed publications, presentations, and abstracts. Through ongoing study of each of our tests, we continue to grow our depth of understanding of disease biology and the broad utility of each of our tests. We believe we are poised for rapid growth by leveraging our scientific development and laboratory operations expertise along with our commercial infrastructure which includes sales, marketing, reimbursement, and regulatory affairs.

In the United States, we market our tests to clinical customers through our targeted sales organization, which includes sales representatives that are engaged in sales efforts and promotional activities primarily to pulmonologists, oncologists, cancer centers and nodule clinics. We market our tests and services to biopharmaceutical companies globally through our targeted business development team, which promotes the broad utility of our tests and testing capabilities throughout drug development and commercialization which is of value to pharmaceutical companies and their drug-development process.

We have funded our operations to date principally from net proceeds from the sales of our common stock through both an IPO and issuances from our Form S-3 shelf, the sale of convertible preferred stock, revenue from diagnostic testing and services, and the incurrence of indebtedness. We had cash and cash equivalents of $32.7 million and $62.1 million as of December 31, 2021 and 2020, respectively.

Factors Affecting Our Performance

We believe there are several important factors that have impacted our operating performance and results of operations, including:

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Testing volume and customer mix. Our revenues and costs are affected by the volume of testing and mix of customers from period to period. We evaluate both the volume of our commercial tests, or the number of tests that we perform for patients on behalf of clinicians, as well as tests for biopharmaceutical companies. Our performance depends on our ability to retain and broaden adoption with existing customers, as well as attract new customers. We believe that the test volume we receive from clinicians and biopharmaceutical companies are indicators of growth in each of these customer verticals. Customer mix for our tests has the potential to significantly impact our results of operations, as the average selling price for biopharmaceutical

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sample testing is currently significantly greater than our average selling price for clinical tests since we are not a contracted provider for, or our tests are not covered by all clinical patients’ insurance. We evaluate our average selling price for tests that are covered by Medicare, Medicare Advantage and commercial payers to understand the trends in reimbursement and apply those trends to our revenue recognition policies.

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Reimbursement for clinical diagnostic testing. Our revenue depends on achieving broad coverage and reimbursement for our tests from third-party payers, including both commercial and government payers. Payment from third-party payers differs depending on whether we have entered into a contract with the payers as a “participating provider” or do not have a contract and are considered a “non-participating provider.” Payers will often reimburse non-participating providers, if at all, at a lower rate than participating providers.

Historically, we have experienced situations where commercial payers proactively reduced the amounts they were willing to reimburse for our tests, and in other situations, commercial payers have determined that the amounts they previously paid were too high and have sought to recover those perceived excess payments by deducting such amounts from payments otherwise being made. When we contract to serve as a participating provider, reimbursements are made pursuant to a negotiated fee schedule and are limited to only covered indications. Becoming a participating provider generally results in higher reimbursement for covered indications and lack of reimbursement for non-covered indications. As a result, the impact of becoming a participating provider with a specific payer will vary. If we are not able to obtain or maintain coverage and adequate reimbursement from third-party payers, we may not be able to effectively increase our testing volume and revenue as expected. Additionally, retrospective reimbursement adjustments can negatively impact our revenue and cause our financial results to fluctuate.

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Investment in clinical studies and product innovation to support growth. A significant aspect of our business is our investment in research and development, including the development of new products and our investments in clinical utility studies. We have invested heavily in clinical studies for our on market and pipeline products. Our studies focus primarily on the clinical utility of our tests including the ongoing INSIGHT study which seeks to enroll up to 5,000 patients to continue our clinical understanding of the predictive and prognostic value of the VeriStrat test. The ALTITUDE study, launched during the fourth quarter 2020, seeks to further demonstrate the efficacy of the Nodify XL2 and Nodify CDT tests. A secondary focus of our studies is understanding the economic impact of our tests in assisting with decisions related to patient management and the potential impact of our tests in reducing overall healthcare costs.

Our clinical research has resulted in approximately 90 peer-reviewed publications for our tests. In addition to clinical studies, we are collaborating with investigators from multiple academic cancer centers. We believe these studies are critical to gaining physician adoption and driving favorable coverage decisions by payers and expect our investments in research and development to increase. Further we also expect to increase our research and development expenses to fund further innovation and develop new clinically relevant tests.

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Ability to attract new biopharmaceutical customers and maintain and expand relationships with existing customers. Our business development team promotes the broad utility of our products for biopharmaceutical companies in the United States and internationally. Our revenue, business opportunities and growth depend in part on our ability to attract new biopharmaceutical customers and to maintain and expand relationships with existing biopharmaceutical customers. We expect to increase our sales and marketing expenses in furtherance of this as we continue to develop these relationships, we expect to support a growing number of investigations and clinical trials. If our relationships expand, we believe we may have opportunities to offer our platform for companion diagnostic development, novel target discovery and validation efforts, and to grow into other commercial opportunities. For example, we believe our multi-omic data including genomic and proteomic data, in combination with clinical outcomes or claims data, has revenue-generating potential, including for novel target identification and companion diagnostic discovery and development.

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Motivating and expanding our field sales force and customer support team. Our field sales force is the primary point of contact in the clinical setting. These representatives of the company must cover expansive geographic regions which limits their time for interaction and education of our products in the clinical setting. We plan to invest heavily in the field sales force to increase the total number of sales representatives and thereby reduce the geographic footprint each representative must cover. This investment will allow the larger sales force to maximize their education and selling efforts and achieve greater returns. Additionally, we plan to invest in the Boulder-based marketing and customer support teams to continue to provide the field team with the resources to be successful in the field.

While each of these areas present significant opportunities for us, they also pose significant risks and challenges that we must address. See Part II, Item 1A. “Risk Factors” for more information.

COVID-19 Pandemic

The COVID-19 pandemic has disrupted, and we expect will continue to disrupt, our lung diagnostic testing operations. To protect the health and well-being of our workforce, partners, vendors and customers, we provide voluntary COVID-19 testing for employees

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working on-site, implemented social distance and building entry policies at work, restricted travel and facility visits, and followed the States of Colorado and Kansas’ public health orders and the guidance from the CDC. Employees who can perform their duties remotely are asked to work from home and those on site are asked to follow our social distance guidelines. Our sales, marketing and business development efforts have also been constrained by our operational response to the COVID-19 pandemic. We expect to continue to adjust our operational norms to help slow the spread of COVID-19 in the coming months, including complying with government directives and guidelines as they are modified and supplemented.

On September 9, 2021, President Biden signed two new Executive Orders that would require vaccinations for all federal workers and contractors. In addition, it was also announced that the Department of Labor’s Occupational Safety and Health Administration (OSHA) and the CMS would each be releasing emergency rules that would respectively require (i) employers with 100 or more employees and (ii) workers in health care setting that receive Medicare and Medicaid reimbursement to implement vaccination and testing protocols. In January 2022, the United States Supreme Court blocked the Biden administration from enforcing its sweeping vaccine-or-test requirements for large private companies, but allowed a vaccine mandate to stand for medical facilities that take Medicare or Medicaid payments. We are currently a party to several federal contracts and in order to remain compliant with President Biden’s Executive Orders, all Biodesix teammates were required to have received an effective dose of the COVID-19 vaccine no later than January 4, 2022. Exemptions were requested for qualifying medical reasons or sincerely held religious belief, subject to review and approval.

The COVID-19 pandemic and the surge associated with the Delta and Omicron variants have negatively affected, and we expect will continue to negatively affect, our lung diagnostic testing-related revenue and our clinical studies. For example, cancer patients may have more limited access to hospitals, healthcare providers and medical resources as they take steps to control the spread of COVID-19. Our biopharmaceutical customers are facing challenges in recruiting patients and in conducting clinical trials to advance their pipelines, for which our tests could be utilized. As a result of the COVID-19 pandemic, beginning in the latter half of March 2020, we saw a decline in business with existing and new biopharmaceutical customers. We began to see recovery during the fourth quarter 2020 as our delivered tests exceeded first quarter 2020 delivered tests and we expect to continue to see the recovery extending into 2022; however, the rate of growth experienced since we began to see recovery is below our expectations and has been impacted by ongoing surges, such as the surge in the Delta and Omicron variants, which have negatively impacted patients willingness or ability to gain access to healthcare providers and medical resources. Further, our clinical studies, such as our ongoing INSIGHT and ALTITUDE studies, as well as our arrangements including contracted clinical studies with our biopharmaceutical customers, are expected to take longer to complete than what we expected before the outbreak of the COVID-19 pandemic. Our biopharmaceutical services revenue grew by approximately 20% during 2021 as compared to 2020; however, we are continuing to experience delays in clinical trials from across the country and world due to COVID-19 restrictions. We expect further improvement in our biopharmaceutical activities during 2022 as compared to 2021.

Conversely, we experienced a significant increase in revenues related to an increase in the demand for our Biodesix WorkSafe testing program, our COVID-19 testing program, since the onset of the pandemic. COVID-19 diagnostic services contributed approximately $30.2 million and $28.3 million during fiscal years 2021 and 2020, respectively. The first quarter 2021 was our high-water mark for COVID-19 testing revenue. We experienced a steady decline in subsequent quarters as immunizations in the U.S. accelerated. We do not anticipate the need for COVID testing to be commensurate with the peak demand experienced during the first quarter 2021 and instead expect the demand to moderate as new variants and infection occur. The reduction in demand for COVID-19 diagnostic testing will be a key indicator of continued recovery and is taken as a positive sign for both our Lung Diagnostic and Biopharmaceutical Services as we head into 2022. There is no assurance that our COVID-19 testing program will continue to be accepted by the market or that other diagnostic tests will become more accepted, produce quicker results or are more accurate. Further, the longevity and extent of the COVID-19 pandemic is uncertain. If the pandemic were to dissipate, whether due to a significant decrease in new infections, due to acquiring herd immunity based on previous natural infection, and the availability and rapid distribution of vaccines, the evolution of variant strains that impact diagnostic test performance, or otherwise, the need for COVID-19 testing could decrease significantly and this could have an adverse effect on our results of operations and profitability. As a result, the increase in revenue due to any increase in demand for these diagnostic tests may not be indicative of our future revenue. See Part II., Item 1A. “Risk Factors” for a description of how the COVID-19 pandemic may adversely affect our business, financial condition and results of operations.

Fourth Quarter and Full Year 2021 Financial and Operational Highlights

The Company generated record revenue in fiscal year 2021 of $54.5 million, representing an increase of 20% as compared to fiscal year 2020. The following were significant developments affecting our business, capital structure and liquidity during the year ended December 31, 2021 as compared to the same period in 2020 unless otherwise noted:

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Total revenue of $7.2 million and $54.5 million for the fourth quarter and fiscal year 2021, respectively, with continued lung diagnostic year over year growth despite COVID-19 variant surges;

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Core lung diagnostic revenue of $5.4 million and $18.7 million for the fourth quarter and fiscal year 2021, respectively, an increase of 48% and 49%. Nodify nodule management tests and sales force expansion continue to drive lung diagnostic growth;

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Biopharmaceutical Services revenue of $1.4 million and $5.6 million for the fourth quarter and fiscal year 2021, respectively, a decrease of 29% and increase 20%;

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COVID-19 testing revenue of $0.4 million and $30.2 million for the fourth quarter and fiscal year 2021, respectively, a decrease of 98% and increase 7%. The decline over the fourth quarter of 2020 is commensurate with the shift away from lab-based testing and towards point-of-care and at-home rapid antigen testing during much of the back half of 2021;

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Fourth quarter 2021 gross margin of $4.7 million or 65% as a percentage of revenue as compared to 46% primarily driven by the mix shift of sales to higher-margin core lung diagnostics and away from lower-margin COVID-19 testing;

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Operating expenses (excluding direct costs and expenses) of $16.4 million and $64.9 million for the fourth quarter and fiscal year 2021, an increase of 9% and 40% as the Company doubled the size of the lung focused direct and dedicated sales force in 2021;

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Net loss of $13.3 million and $43.2 million for the fourth quarter and fiscal year 2021, respectively, an increase of 193% and 38%;

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Cash and cash equivalents of $32.7 million, inclusive of a fourth quarter 2021 equity capital issuance of $15.7 million in net proceeds and the partial prepayment of $20 million of the 2021 Term Loan.

Components of Operating Results

Revenues

We derive our revenue from two primary sources: (i) providing diagnostic testing in the clinical setting (Diagnostic Tests); and (ii) providing biopharmaceutical companies with services that include diagnostic research, clinical research, clinical trial testing, development and testing services generally provided outside the clinical setting and governed by individual contracts with third parties as well as development and commercialization of companion diagnostics (Services).

Diagnostic Tests

Diagnostic test revenue is generated from delivery of results from our diagnostic tests. In the United States, we performed tests as both an in-network and out-of-network service provider depending on the test performed and the contracted status of the insurer. We provide diagnostic tests in two primary categories: (i) core lung diagnostics testing and (ii) COVID-19 testing.

We consider diagnostic testing to be completed upon the delivery of test results to our customer, either the prescribing physician or third-party to which we contracted for services to be performed, which is considered the performance obligation. The fees for such services are billed either to a third party such as Medicare, medical facilities, commercial insurance payers, or to the patient. We determine the transaction price related to our contracts by considering the nature of the payer, the historical amount of time until payment by a payer and historical price concessions granted to groups of customers.

Services

Services revenue is generated from the delivery of our on-market tests, pipeline tests, custom diagnostic testing, and other scientific services for a purpose as defined by any individual customer. At times we collaborate with large biopharmaceutical companies in an attempt to discover biomarkers that would be helpful in their drug development or marketing. The performance obligations and related revenue for these sales is defined by a written agreement between us and our customer. These services are generally completed upon the delivery of testing results, or other contractually defined milestone(s), to the customer, which is considered the performance obligation. Customers for these services are typically large pharmaceutical companies where collectability is reasonably assured and therefore revenue is accrued upon completion of the performance obligations. Revenue derived from services is often unpredictable and can cause dramatic swings in our overall net revenue line from quarter to quarter.

Operating Expenses

Direct costs and expenses

Cost of diagnostic testing generally consists of cost of materials, direct labor, including bonus, employee benefits, equipment and infrastructure expenses associated with acquiring and processing test samples, including sample accessioning, test performance, quality control analyses, charges to collect and transport samples; curation of test results for physicians; and in some cases, license or royalty fees due to third parties. Costs associated with performing our tests are recorded as the tests are processed regardless of whether revenue was recognized with respect to the tests. Infrastructure expenses include depreciation of laboratory equipment, rent costs, amortization of leasehold improvements and information technology costs. Royalties for licensed technology are calculated as a percentage of revenues generated using the associated technology and recorded as expense at the time the related revenue is recognized. One-time royalty payments related to signing of license agreements or other milestones, such as issuance of new patents, are amortized to expense over the expected useful life of the patents. While we do not believe the technologies underlying these licenses are necessary to permit us to provide our tests, we do believe these technologies are potentially valuable and of possible strategic importance to us or our

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competitors. Under these license agreements, we are obligated to pay aggregate royalties ranging from 1% to 8% of sales in which the patents or know-how are used in the product or service sold, sometimes subject to minimum annual royalties or fees in certain agreements.

We expect the aggregate cost of diagnostic testing to increase in line with the increase in the number of tests we perform, but the cost per test to decrease modestly over time due to the efficiencies we may gain as test volume increases, and from automation and other cost reductions. Cost of services includes costs incurred for the performance of development services requested by our customers. Costs of development services will vary depending on the nature, timing and scope of customer projects.

Research and development

Research and development expenses consist of costs incurred to develop technology and include salaries and benefits, reagents and supplies used in research and development laboratory work, infrastructure expenses, including allocated facility occupancy and information technology costs, contract services, clinical studies, other outside costs and costs to develop our technology capabilities. Research and development expenses account for a significant portion of our operating expenses and consist primarily of external and internal costs incurred in connection with the discovery and development of our product candidates.

External expenses include: (i) payments to third parties in connection with the clinical development of our product candidates, including contract research organizations and consultants; (ii) the cost of manufacturing products for use in our preclinical studies and clinical trials, including payments to contract manufacturing organizations (CMOs) and consultants; (iii) scientific development services, consulting research fees and for sponsored research arrangements with third parties; (iv) laboratory supplies; and (v) allocated facilities, depreciation and other expenses, which include direct or allocated expenses for IT, rent and maintenance of facilities. External expenses are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers or our estimate of the level of service that has been performed at each reporting date. We track external costs by the stage of program, clinical or preclinical.

Internal expenses include employee-related costs, including salaries and related benefits for employees engaged in research and development functions. We do not track internal costs by product candidate because these costs are deployed across multiple programs and, as such, are not separately classified.

Research and development costs are expensed as incurred. Payments made prior to the receipt of goods or services to be used in research and development are deferred and recognized as expense in the period in which the related goods are received or services are rendered. Costs to develop our technology capabilities are recorded as research and development.

We expect our research and development expenses to increase as we continue to innovate and develop additional products and expand our data management resources. As our services revenue grows, an increasing portion of research and development dollars are expected to be allocated to cost of goods for biopharmaceutical service contracts. This expense, though expected to increase in dollars, is expected to decrease as a percentage of revenue in the long term, though it may fluctuate as a percentage of our revenues from period to period due to the timing and extent of these expenses.

Sales, marketing, general and administrative

Our sales and marketing expenses are expensed as incurred and include costs associated with our sales organization, including our direct sales force and sales management, client services, marketing and reimbursement, as well as business development personnel who are focused on our biopharmaceutical customers. These expenses consist primarily of salaries, commissions, bonuses, employee benefits, and travel, as well as marketing and educational activities and allocated overhead expenses. We expect our sales and marketing expenses to increase in dollars as we expand our sales force, increase our presence within the United States, and increase our marketing activities to drive further awareness and adoption of our tests and our future products. These expenses, though expected to increase in dollars, are expected to decrease as a percentage of revenue in the long term, though they may fluctuate as a percentage of our revenues from period to period due to the timing and extent of these expenses.

Our general and administrative expenses include costs for our executive, accounting, finance, legal and human resources functions. These expenses consist principally of salaries, bonuses, employee benefits, and travel, as well as professional services fees such as consulting, audit, tax and legal fees, and general corporate costs and allocated overhead expenses. We expect that our general and administrative expenses will continue to increase in dollars, primarily due to increased headcount and costs associated with operating as a public company, including expenses related to legal, accounting, regulatory, maintaining compliance with exchange listing and requirements of the SEC, director and officer insurance premiums and investor relations. These expenses, though expected to increase in dollars, are expected to decrease as a percentage of revenue in the long term, though they may fluctuate as a percentage from period to period due to the timing and extent of these expenses.

Change in Fair Value of Contingent Consideration

In connection with the purchase transaction of Indi, we recorded contingent consideration pertaining to the amounts potentially payable to Indi shareholder pursuant to the terms of the asset purchase agreement. The fair value of contingent consideration was assessed at each balance sheet date and changes, if any, to the fair value are recognized as operating expenses within the statement of operations.

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The Company met the gross margin target of $2.0 million for three consecutive months during the three months ended June 30, 2021. Subsequent changes to the contingent consideration following the achievement of the gross margin target are recorded as ‘Interest expense’ in the statements of operations resulting from the passage of time and fixed payment schedule. The significant unobservable inputs used in the measurement of fair value included the probability of successful achievement of the specified product gross margin targets, the period in which the targets were expected to be achieved, and discount rates which ranged from 11% to 13.5%. As a result of the achievement of the gross margin target, the only significant unobservable input used in the measurement of fair value includes the discount rate since all other inputs became fixed and determinable.

Non-Operating Expenses

Interest Expense and Interest Income

Interest expense consists of cash and non-cash interest from our 2021 Term Loan, the 2018 Notes, Paycheck Protection Program loan, convertible debt and changes in the value of our contingent consideration associated with the passage of time subsequent to the achievement of the contingency in the second quarter 2021. Our convertible debt, along with the related accrued interest, was automatically converted to 1,848,280 shares of our common stock upon completion of our IPO in October 2020. Interest income, which is included in ‘Other income, net’ in the statements of operations consists of income earned on our cash and cash equivalents.

Results of Operations

The following table sets forth the significant components of our results of operations for the periods presented (in thousands, except percentages):

Year Ended December 31, Change

Operating expenses

Change in fair value of contingent consideration 1,622 818 804 98 %

Other (expense) income

Change in fair value of warrant liability — (1,252 ) (1,252 ) (100 )%

Revenues

We generate revenue from our diagnostic tests and services that we provide. Our revenues for the periods indicated were as follows (in thousands, except percentages):

Year Ended December 31, Change

Total revenue increased $8.9 million or 20% for the year ended December 31, 2021 compared to the year ended December 31, 2020.

Diagnostic test revenue increased $8.0 million or 20% for the year ended December 31, 2021 compared to the year ended December 31, 2020. The primary driver of the increase in revenue for diagnostic testing was attributable to the success in our targeted strategy of growth in our core lung diagnostic testing. Lung diagnostic revenue grew by $6.1 million or 49% for the year ended December 31, 2021 compared to the same period in 2020 driven primarily from an increase in Nodify XL2 and Nodify CDT tests delivered. We began to see recovery during the fourth quarter 2020 in lung diagnostic testing as our delivered tests exceeded first quarter 2020 delivered tests as healthcare practitioners, including pulmonologists, increasingly returned to pre-pandemic related care. The increase in Diagnostic test revenue was also attributable to the expansion of the sales organization during fiscal year 2021. However, the Company’s sales efforts continued to be impacted by the COVID-19 pandemic and the surge associated with the Delta and Omicron variants which have

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negatively affected, and we expect may continue to negatively affect, the growth rate of our lung diagnostic testing-related revenue and our clinical studies.

In addition to lung diagnostic testing revenue, our COVID-19 testing revenue increased by $1.9 million, or 7% from $28.3 million in fiscal year 2020 to $30.2 million in 2021 due primarily to the delivery of our COVID-19 tests that were delivered in the first half of 2021. The first quarter 2021 was our peak for COVID-19 testing revenue but we have experienced a substantial decline in COVID-19 testing revenue subsequently as a result of the expiration of our contract with the Big Ten during the second quarter 2021 and as immunizations in the U.S. accelerated. The longevity and extent of COVID-19 revenue is uncertain and may not be indicative of our future revenue and we expect it to vary based on new variants and rates of infection.

Services revenue increased $0.9 million or 20% for the year ended December 31, 2021 compared to the year ended December 31, 2020, due primarily to the recovery in testing volumes from clinical studies and services.

Operating Expenses

Direct costs and expenses

Direct costs and expenses related to revenue increased $8.5 million or 39% for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase in direct costs and expenses is primarily driven by the increase in lung diagnostic tests delivered during the year ended December 31, 2021 compared to the same period in 2020 and an increase in cost per COVID-19 test.

Research and Development

Research and development expenses increased $2.0 million or 18% for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase in cost was due primarily to increased employee compensation and benefits costs associated with non-cash stock-based compensation as a result of the transition from a private to a public company and increased headcount of our research and development personnel, partially offset by decreased spending on clinical trials.

The following table summarizes our external and internal costs for the years ended December 31, 2021 and 2020 (in thousands, except percentages):

Year Ended December 31, Change

External expenses:

Clinical trials and associated costs $ 2,061 $ 2,487 $ (426 ) (17 )%

Sales, Marketing, General and Administrative

Sales, marketing, general and administrative expenses increased $15.7 million or 45% for the year ended December 31, 2021 compared to the year ended December 31, 2020. This increase was driven primarily by increases in employee compensation and benefits associated with expansion of the Company’s workforce and increased non-cash share-based compensation expense. This increase is also the result of increases in non-employee costs associated with legal and other fees as a result of the transition from a private to a public company.

Change in Fair Value of Contingent Consideration

Change in fair value of contingent consideration increased $0.8 million or 98% for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase is a result of the change in fair value to reflect the passage of time, changes in discount rate, as well as estimates regarding the period in which targets that trigger the payment of contingent consideration will be achieved and subsequently paid. The gross margin target was met during the three months ended June 30, 2021. The net change to contingent consideration through the date the gross margin target was met is recorded as operating expenses in the statements of operations. Subsequent changes to the contingent consideration following the achievement of the gross margin target are recorded as ‘Interest expense’ in the statements of operations resulting from the passage of time and fixed payment schedule.

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Non-Operating Expenses

Interest Expense

Interest expense decreased $3.1 million or 41% for the year ended December 31, 2021 compared to the year ended December 31, 2020. This decline was due to a decrease of interest expense related to convertible notes, which were converted to common stock upon the completion of our IPO in October 2020, and a decrease resulting from the refinancing of our term loan, reducing near-term interest costs. Partially offsetting this decline is the increase to contingent consideration recorded as ‘Interest expense’ resulting from the passage of time and fixed payment schedule during the year ended December 31, 2021 of $2.2 million.

Change in Fair Value of Warrant Liability

During the year ended December 31, 2020, we recognized a charge for the change in estimated fair value of our warrant liability related to warrants issued in connection with our Series G preferred stock of $1.3 million. Effective with the closing of our initial public offering in October 2020, the warrants to purchase Series G preferred stock were automatically converted to warrants to acquire common stock and the carrying value of the warrants of $1.6 million were reclassified to additional paid-in capital.

Gain on Debt Extinguishment, net

During the year ended December 31, 2021, we recognized a $2.3 million net gain on debt extinguishment. The Company recorded a gain on debt extinguishment of $3.1 million related to the legal release and forgiveness of the Paycheck Protection Program Loan in full. The gain was partially offset by losses on debt extinguishment of $0.7 million and $0.1 million resulting from the repayment and termination of our 2018 secured promissory note with Innovatus and the write-off of debt issuance costs associated with a $20 million prepayment of our 2021 Term Loan, respectively.

Other (expense) income, net

Other expense, net for the year ended December 31, 2021 is primarily attributable to a loss on disposal of property and equipment. Other income, net for the year ended December 31, 2020 was primarily attributable to sublease income from two subleases that expired in the second and third quarter of 2020 and a gain on disposal of property and equipment.

Liquidity and Capital Resources

We are an emerging growth company and, as such, have yet to generate positive cash flows from operations. We have funded our operating activities primarily through financing activities, which include both debt and equity offerings. In October 2020, we completed an IPO, resulting in net proceeds of approximately $63.8 million after deducting offering costs, underwriting discounts and commissions.

During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (COVID-19). As a result of the pandemic, the Company diversified its diagnostic testing beyond lung diagnostic testing to include the critical service of COVID-19 diagnostic testing. Beginning in the third quarter 2020, the Company’s COVID-19 testing services began to experience rapid growth with a peak in the first quarter 2021; however, subsequent to this peak, we have experienced a rapid decline in COVID-19 testing revenue primarily as a result of a few significant contracts that have expired as well as the ongoing increase in COVID-19 vaccination rates across the U.S. In addition, the COVID-19 pandemic negatively affected, and we expect may continue to negatively affect, our lung diagnostic testing-related revenue and our clinical studies. We began to see recovery beginning in the fourth quarter 2020 as our core lung diagnostics delivered tests exceeded first quarter 2020 delivered tests and have experienced continued recovery during 2021 as lung diagnostic revenue grew 49% during 2021 as compared to 2020. However, given the continuation of the pandemic through COVID-19 variants, including the associated hospitalization surges and the impact on the medical ecosystem, which include clinical studies and pulmonary practices, the demand for our lung diagnostic testing and biopharmaceutical services has not recovered in line with our expectation from the time of our IPO. While the full outcome of the COVID-19 pandemic is unknown, it continues to negatively impact our ability to grow and scale our business in line with our expectations and disclosures at the time of our IPO. As a result, the items identified above have had an adverse effect on our revenue, results of operations and cash flows.

In March 2021, we completed the closing of our 2021 Term Loan for a principal amount of $30 million and extinguished our prior 2018 term loan for $25.9 million. The 2021 Term Loan contains customary affirmative covenants, including covenants regarding compliance with applicable laws and regulation, payment of taxes, insurance coverage, notice of certain events, and reporting requirements. Further, the 2021 Term Loan contains customary negative covenants limiting the ability to, among other things, incur future debt, transfer assets except for the ordinary course of business, make acquisitions, make certain restricted payments, and sell assets, subject to certain exceptions. The 2021 Term Loan requires the Company to comply with a minimum liquidity ratio covenant (as defined in the 2021 Term Loan) of not less than 0.95 to 1.00, and has a trailing six-month rolling revenue requirement of not less than 70% of the Company’s projected revenue performed at the end each reporting period.

During the second quarter 2021, the Company determined that it would apply for forgiveness under the SBA’s Loan Forgiveness program, a change from its previous intent to repay. Subsequently, in July 2021 the Company applied for loan forgiveness and on August 17, 2021, the Company received legal release and formal notification that the PPP Loan was forgiven in full. As of and for the three

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months ended September 30, 2021, the Company reduced the ‘Current portion of notes payable’ and recorded a gain on extinguishment in the statements of operations for the $3.1 million forgiven.

On September 30, 2021, we entered into the Consent and First Amendment to Loan and Security Agreement (the 2021 Term Loan Amendment) to, among other things, amend our 2021 Term Loan to eliminate the revenue covenant for the period ended September 30, 2021 and modify the revenue covenant threshold for the three month period ended December 31, 2021. In addition, we agreed to establish a restricted cash collateral account for $15 million for the benefit of our lender if the balance of our cash and cash equivalents declines below $40 million.

On December 30, 2021, the Company raised approximately $16.3 million in gross proceeds from the sale of 3,756,994 common shares at a public offering price of $4.35 per share in an at-the-market offering. The Company received net proceeds of $15.7 million after deducting underwriting discounts and commissions and offering expenses payable by the Company.

On December 31, 2021, we entered into the Consent and Second Amendment to Loan and Security Agreement (Second Amendment) to, among other things, amend our 2021 Term Loan and First Amendment to obtain consent for the $4.6 million January 2022 milestone payment under the Indi APA, repay $20 million in outstanding principal on December 31, 2021, waive the $600,000 prepayment fee on the $20 million Term Loan repayment, and waive the minimum revenue covenant as of December 31, 2021 and modify the minimum revenue requirement to not less 75% for the three months ended March 31, 2022 and not less than 75% on a trailing six month rolling basis for each quarter thereafter of the Company’s projected revenue performed at the end of each reporting period. The Lender agreed to apply the full amount of funds previously established within the restricted cash collateral account to partially prepay the $20 million in outstanding principal, thereby eliminating the restricted cash collateral account. As of December 31, 2021, the Company was in compliance with all restrictive and financial covenants associated with its borrowings.

As of December 31, 2021, we maintained cash and cash equivalents of $32.7 million and we have $10 million in principal balance remaining on our 2021 Term Loan. We have incurred significant losses since inception and, as a result, we have funded our operations to date primarily through the sale of common stock in our IPO in October 2020, the issuance of notes payable, and from our two primary revenue sources: (i) diagnostic testing, which include lung diagnostic testing and COVID-19 testing, and (ii) providing biopharmaceutical companies with development and testing services. In accordance with Accounting Standards Update 2014-15 (ASC Topic 205-40), Presentation of Financial Statements - Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, the Company is required to evaluate whether there is substantial doubt about its ability to continue as a going concern each reporting period, including interim periods. In evaluating the Company’s ability to continue as a going concern, management projected its cash flow sources and needs and evaluated the conditions and events that could raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these financial statements were issued. Management considered the Company’s current projections of future cash flows, current financial condition, sources of liquidity and debt obligations for at least one year from the date of issuance of this Form 10-K in considering whether it has the ability to meet its obligations.

Our ability to meet our obligations as they come due may be impacted by our ability to remain compliant with financial covenants in our 2021 Term Loan or to obtain waivers or amendments that impact the related covenants. Due to the continued uncertainty caused by the COVID-19 pandemic, significant risks remain with respect to our ability to meet these thresholds and any material adverse effect on our revenues, income and expenses could impact our ability to maintain compliance with these covenants.

Based on our current operating plan, unless we raise additional capital (debt or equity) or obtain waiver from complying with such financial covenants, we expect that we will be unable to maintain our financial covenants under our 2021 Term Loan during the next twelve months, which could result in an Event of Default, as defined, causing an acceleration of the outstanding balance. We have taken steps to improve our liquidity through and the actions noted above and have also undertaken several proactive measures to mitigate the financial and operational impacts of COVID-19 through the reduction of planned capital expenditures and certain operating expenses but we do not expect that these actions alone will be sufficient to maintain our financial covenants. In addition, we have entered into negotiations with certain creditors to modify existing terms of arrangements to delay near term cash requirements and extend the period of payments; however, those negotiations are not final at this time and may not result in final agreement. We plan to raise additional funding through the issuance of equity or debt securities; however, we have not secured such funding at the time of this filing and any such financing activities are subject to market conditions. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. There can be no assurance that additional capital will be available to us or, if available, will be available in sufficient amounts or on terms acceptable to us or on a timely basis nor can there be any assurance that the Company will be a beneficiary of the COVID-19 Action Plan. If adequate capital resources are not available on a timely basis, we intend to consider limiting our operations substantially. This limitation of operations could include a hiring freeze, reductions in our workforce, reduction in cash compensation, deferring capital expenditures, and reducing other operating costs.

The Company’s revenues, results of operations and cash flows have been materially adversely impacted by the items noted above. We expect to continue to incur significant expenses for the foreseeable future and to incur operating losses in the near term while we make

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investments to support our anticipated growth. Our current operating plan, which is in part determined based on our most recent historical actual results and trends, along with the items noted above, raises substantial doubt about the Company’s ability to continue as a going concern. Our audited financial statements have been prepared assuming we will continue as a going concern and do not include any adjustments that might be necessary should we be unable to continue as a going concern.

Cash Flows

The following summarizes our cash flows for the periods indicated (in thousands):

Year Ended December 31,

Net cash flows (used in) provided by:

Our cash flows resulted in a net decrease in cash of $29.5 million during the year ended December 31, 2021 compared to a net increase in cash of $56.8 million for the year ended December 31, 2020. For the year ended December 31, 2021, net cash used in operating activities increased by approximately $6.9 million, primarily due to a year-over-year increase in net loss of $11.8 million and decrease in non-cash adjustments to net loss of $4.5 million driven primarily by a decrease in amortization of convertible notes debt discount in 2020 of $4.4 million and an increase in net gain on debt extinguishment in 2021 of $2.3 million. This is partially offset by an increase in stock-based compensation expense of $1.2 million, increase in contingent consideration of $0.8 million, and increase in other non-cash items of $0.2 million. In addition, the Company experienced favorable changes in net working capital of $9.4 million primarily as a result of increased cash collections from customers, partially offset by increased payments to vendors.

Net cash used in investing activities during the year ended December 31, 2021 totaled $2.5 million, a decrease of $0.4 million compared to the same period in 2020. The decrease in net cash used in investing activities was primarily due to payments in 2020 to acquire Oncimmune assets that are not present in 2021. This is partially offset by an increase in purchases of property and equipment during 2021 in support of our operations.

Net cash provided by financing activities during the year ended December 31, 2021 totaled $1.3 million, a decrease of $79.9 million compared to the same period in 2020. The net cash provided by financing activities for the year ended December 31, 2021 primarily resulted from $15.7 million net proceeds from our at-the-money public offering, net proceeds from our 2021 Term Loan of $29.9 million, and proceeds from the issuance of common stock under the ESPP and exercise of stock options of approximately $1.0 million, primarily offset by the repayment of $25.3 million from our 2018 Term Loan and a $20 million prepayment on our 2021 Term Loan. The net cash provided by financing activities for the year ended December 31, 2020 primarily resulted from $72.0 million gross proceeds from our initial public offering, $13.0 million in proceeds from the issuance of convertible notes payable, $1.3 million proceeds from stock option exercises, and $3.1 from proceeds from our paycheck protection program loan, offset by equity financing and other costs associated with our initial public offering of $8.3 million.

Contractual Obligations and Commitments

The following table summarizes our non-cancelable contractual obligations and commitments as of December 31, 2021 (in thousands):

Payments due by period (1)

Total Less than1 year 1 to 3years 4 to 5years More than5 years

Operating lease obligations (2) $ 937 $ 775 $ 158 $ 4 $ —

(1)

Royalty payments that we may owe are not included as the amount and timing of such payments is uncertain.

(2)

We are obligated under non-cancellable operating leases for all of our facilities. Lease terms for our facilities range from less than one to three years and generally require us to pay real estate taxes, certain insurance and operating costs.

(3)

Includes the 2021 Term Loan payments of principal, interest and final payment fee of $2.7 million payment due upon loan maturity.

(4)

The gross margin target associated with the purchase transaction of Indi was achieved in the quarter ending June 30, 2021, giving rise to the previously disclosed contingent obligations of $37.0 million in the aggregate payable through the issuance of Company’s shares of common stock subject to a fixed price put option. The Company entered into an amendment in August 2021 to the original agreement in which all parties agreed to forgo the issuance of shares of common stock of the Company that would otherwise be issued to it, and the Company will instead make six quarterly installment payments of $4.6 million beginning in January 2022 and a final payment of approximately $9.3 million in July 2023 for a total of $37.0 million. The aggregate amount of payments owed by the Company under this

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amendment is the same as if Indi had exercised the put right or the Company had exercised the call right provided for in the original agreement.

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies and Significant Judgments and Estimates

In accordance with accounting principles generally accepted in the United States, we are required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Certain of these estimates significantly influence the portrayal of our financial condition and results of operations and require us to make difficult, subjective or complex judgments. Our critical accounting policies primarily relate to our fair value estimates, and are described in greater detail in Note 2 to our financial statements in Part 8 of this Annual Report on Form 10-K.

Revenue Recognition

We recognize revenue when our customers obtain control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for our goods or services. To determine revenue recognition for our arrangements with our customers, we perform a five-step process, which includes: (i) identifying the contract(s) with a customer; (ii) identifying the performance obligations in the contract; (iii) determining the transaction price; (iv) allocating the transaction price to the performance obligations in the contract; and (v) recognizing revenue when (or as) we satisfy our performance obligations.

Diagnostic test revenues

Diagnostic test revenues are recognized upon completion of our performance obligation to the deliver test results to our customer, either the prescribing physician or third-party to which we contracted for services to be performed. We consider diagnostic testing to be completed upon the delivery of test results to our customer which is considered the performance obligation. The fees for such services are billed either to a third party such as Medicare, medical facilities, commercial insurance payers, or to the patient. We determine the transaction price related to our contracts by considering the nature of the payer, the historical amount of time until payment by a payer and historical price concessions granted to groups of customers. These estimates require significant judgment by management.

Service revenues

Service revenues are recognized upon completion of our performance obligation to deliver testing results for assay development and testing services. The performance obligations and related revenue for these sales is defined by a written agreement between us and our customer. These services are generally completed upon the delivery of testing results, or other contractually defined milestone(s), to the customer, which is considered the performance obligation. Customers for these services are typically large pharmaceutical companies where collectability is reasonably assured and therefore revenue is accrued upon completion of the performance obligations. Revenue derived from services is often unpredictable and can cause dramatic swings in our overall net revenue line from quarter to quarter.

Share-based Compensation and Grant Date Fair Value

Share-based compensation related to stock options granted to our employees, directors and non-employees is measured at the grant date based on the fair value of the award. For our service-based awards, the fair value of each award is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards. Compensation expense for share-based awards with performance conditions is recognized based upon the probability the performance conditions will be met as defined in the grant. Restricted stock units are measured at their grant date fair value using the closing price of our common stock on the date of grant and recognized to expense on a straight-line basis over the vesting period of each award. We estimate forfeitures and adjust these estimates to actual forfeitures as they occur.

We use the Black-Scholes option-pricing model to estimate the fair value of our share-based option awards, which requires assumptions to be made related to expected term of an award, expected volatility, the risk-free rate and expected dividend yield. Following the completion of our initial public offering, our Board of Directors has determined the fair value of our common stock is based on our closing price as reported on the date of grant on the primary stock exchange on which our common stock is traded. Changes in these subjective assumptions can materially affect the estimated value of equity grants and the share-based compensation that we record in our financial statements.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (ASC Topic 842). The new guidance maintains two classifications of leases: finance leases, which replace capital leases, and operating leases. Lessees will need to recognize a right-of-use asset and a lease liability on the balance sheet for those leases previously classified as operating leases under the old guidance. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for direct costs. The accounting standard will be effective for the Company beginning January 1, 2022. Based on our current analysis expect the adoption to result in the recognition of approximately $1.5 million of right of use assets and associated lease liabilities, inclusive of both lease and

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non-lease components, in our balance sheet and do not expect any material impact to our statement of operations or statement of cash flows. We are implementing new processes and internal controls over lease recognition, which will ultimately assist in the application of the new lease standard.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (ASC Topic 326). This ASU requires measurement and recognition of expected credit losses for financial assets. This guidance will become effective for the Company beginning January 1, 2023 with early adoption permitted. The Company is currently evaluating this guidance and assessing the overall impact on its financial statements.

Implications of Being an Emerging Growth Company and Smaller Reporting Company

We are an “emerging growth company” within the meaning of the Jumpstart Our Business Startups Act (JOBS Act). As an emerging growth company, we may take advantage of certain exemptions from various public company reporting requirements, including the requirement that our internal control over financial reporting be audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), certain requirements related to the disclosure of executive compensation in our periodic reports and proxy statements, the requirement that we hold a nonbinding advisory vote on executive compensation and any golden parachute payments. We may take advantage of these exemptions until we are no longer an emerging growth company. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerging growth companies. As a result of the accounting standards election, we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies, which may make comparison of our financials to those of other public companies more difficult.

We will remain an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (ii) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (iii) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; and (iv) until December 31, 2025 (the year ended December 31st following the fifth anniversary of our initial public offering.

Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which: (i) the market value of our common shares held by non-affiliates exceeds $250 million as of the end of that year’s second fiscal quarter, or (ii) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our common shares held by non-affiliates exceeds $700 million as of the end of that year’s second fiscal quarter.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates.

Interest Rate Risk

We are exposed to market risk for changes in interest rates related primarily to our cash and cash equivalents, marketable securities and our indebtedness, including our outstanding 2021 Term Loan. As of December 31, 2021, we had $10 million outstanding on the 2021 Term Loan subject to a floating per annum rate equal to the greater of (i) 2.00% above the prime rate, or (ii) 5.25%. Historically, we have not entered into derivative agreements such as interest rate caps and swaps to manage our floating interest rate exposure.

Periodically throughout the year, we have maintained balances in various operating accounts in excess of federally insured limits. Our cash and cash equivalents are funds held in checking and bank savings accounts, primarily at two U.S. financial institutions. We consider all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. We continually monitor our positions with, and the credit quality of, the financial institutions with which we invest.

As of December 31, 2021, a hypothetical 100 basis point increase in interest rates would not have a material impact on our investment portfolio, financial position or results of operations.

Item 8. Financial Statements and Supplementary Data.

The financial statements and supplementary data are as set forth in the index to the financial statements on page F-1.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain "disclosure controls and procedures," as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2021 based on the criteria established in "Internal Control – Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), using the 2013 framework. Based on our assessment, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2021, the Company's internal control over financial reporting was effective based on the criteria set forth by COSO.

This annual report does not include an attestation report of our registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

Changes in Internal Control over Financial Reporting

During the quarter ended December 31, 2021, there were no changes that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this item with respect to directors is incorporated by reference from the information under the captions "Board and Corporate Governance Matters—Election of Directors" and "—Director Independence" contained in our Proxy Statement to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2021 in connection with the solicitation of proxies for our 2022 Annual Meeting of Stockholders (the Proxy Statement). Certain information required by this item concerning executive officers is set forth in the Proxy Statement under the caption "Executive Compensation—Executive Officers" and is incorporated herein by reference.

Item 405 of Regulation S-K calls for disclosure of any known late filing or failure by an insider to file a report required by Section 16(a) of the Exchange Act. This disclosure is contained in the section entitled "Stock Ownership—Delinquent Section 16(a) Reports" in the Proxy Statement and is incorporated herein by reference.

We have adopted a Code of Business Conduct and Ethics that applies to all of our officers and employees, including our President and Chief Executive Officer, our Chief Financial Officer and other employees who perform financial or accounting functions. The Code of Business Conduct and Ethics sets forth the basic principles that guide the business conduct of our employees. Stockholders may request a free copy of our Code of Business Conduct and Ethics by contacting Biodesix, Inc., Attention: Chief Financial Officer, 2970 Wilderness Place, Suite 100, Boulder, Colorado 80301.

To date, there have been no waivers under our Code of Business Conduct and Ethics. We intend to disclose future amendments to certain provisions of our Code of Business Conduct and Ethics or waivers of such Codes granted to executive officers and directors on our website at http://www.biodesix.com within four business days following the date of such amendment or waiver.

Our Board of Directors has appointed an Audit Committee, comprised of Ms. Jean Franchi, as Chairwoman, Mr. Hany Massarany and Dr. Matthew Strobeck. The Board of Directors has determined that Ms. Franchi qualifies as an Audit Committee Financial Expert under the definition outlined by the Securities and Exchange Commission. In addition, each of the members of the Audit Committee qualifies as an "independent director" under the current rules of The NASDAQ Stock Market and Securities and Exchange Commission rules and regulations.

Item 11. Executive Compensation.

The information required by this item is incorporated by reference from the information under "Executive Compensation" contained in the Proxy Statement and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item is incorporated by reference from the information under the captions "Stock Ownership—Security Ownership of Certain Beneficial Owners and Management" and "Executive Compensation—Equity Compensation Plan Information" contained in the Proxy Statement and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this item is incorporated by reference from the information under the caption "Board and Corporate Governance Matters—Certain Relationships and Related Party Transactions" and "—Director Independence" contained in the Proxy Statement and is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services.

The information required by this item is incorporated by reference from the information under the caption "Audit Matters—Principal Accountant Fees and Services" contained in the Proxy Statement and is incorporated herein by reference.

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PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a)

Documents filed as a part of the report.

1.

Financial Statements

Reference is made to the Index to Financial Statements of Biodesix, Inc. included in Item 8 of Part II hereof.

2.

Financial Statement Schedules

All schedules have been omitted because they are not required, not applicable, or the required information is included in the financial statements or notes thereto.

3.

See Item 15(b) below. Each management contract or compensating plan or arrangement required to be filed has been identified.

(b)

Exhibits.

Item 16. Form 10-K Summary.

Not applicable.

101

Exhibit Index

ExhibitNumber Description

102

103

104

23.1* Consent of independent registered public accounting firm.

24.1* Power of Attorney (included on the signature page of this Form 10-K).

101.SCH* Inline XBRL Taxonomy Extension Schema Document

101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document

104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

† Portions of this exhibit have been omitted as the Registrant has determined that the omitted information (i) is not material and (ii) would likely cause competitive harm to the Registrant if publicly disclosed.

+ Indicates management contract or compensatory plan.

* Filed herewith.

**Previously filed.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Biodesix, Inc.

Date: March 14, 2022 By: /s/ RYAN H. SIUREK

Ryan H. Siurek

Chief Accounting Officer

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Scott Hutton and Robin Harper Cowie, and each of them, his or her true and lawful agent, proxy and attorney-in-fact, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to file with the Securities and Exchange Commission this Form 10-K and any and all amendments and exhibits thereto, and all documents in connection therewith, granting unto each such attorney-in-fact and agent full power and authority to do and perform each and every act and thing necessary or appropriate to be done, as fully for all intents and purposes as he or she might or could do in person, hereby approving, ratifying and confirming all that such agent, proxy and attorney-in-fact or any of his or her substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Name Title Date

Scott Hutton

Robin Harper Cowie

/s/ JOHN PATIENCE Chairman and Director March 14, 2022

John Patience

/s/ JEAN FRANCHI Director March 14, 2022

Jean Franchi

/s/ JON FAIZ KAYYEM Director March 14, 2022

Jon Faiz Kayyem, Ph.D.

/s/ HANY MASSARANY Director March 14, 2022

Hany Massarany

/s/ JACK SCHULER Director March 14, 2022

Jack Schuler

/s/ MATTHEW STROBECK Director March 14, 2022

Matthew Strobeck, Ph.D.

/s/ CHARLES WATTS Director March 14, 2022

Charles Watts, M.D.

106

Item 8. Financial Statements and Supplementary Data

BIODESIX, Inc.

INDEX TO FINANCIAL STATEMENTS

Statements of Operations for the Years ended December 31, 2021 and 2020 F-4

Statements of Cash Flows for the Years ended December 31, 2021 and 2020 F-6

Notes to Financial Statements F-8

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Biodesix, Inc.:

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Biodesix, Inc. (the Company) as of December 31, 2021 and 2020, the related statements of operations, convertible preferred stock and stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and needs to raise additional equity or debt capital to fund its operations. These matters raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP

We have served as the Company’s auditor since 2016

Denver, Colorado

March 14, 2022

F-2

BIODESIX, INC.

Balance Sheets

(in thousands, except share data)

As of December 31,

Assets

Current assets

Non‐current assets

Liabilities and Stockholders' Equity

Current liabilities

Current portion of contingent consideration 17,764 —

Current portion of notes payable 19 11,840

Non‐current liabilities

Long‐term notes payable, net of current portion 9,993 15,926

Commitments and contingencies

Stockholders' equity

Total liabilities and stockholders' equity $ 76,097 $ 121,070

The accompanying Notes are an integral part of these financial statements.

F-3

BIODESIX, INC.

Statements of Operations

(in thousands, except per share data)

Year Ended December 31,

Operating expenses:

Sales, marketing, general and administrative 50,517 34,857

Change in fair value of contingent consideration 1,622 818

Other (expense) income:

Change in fair value of warrant liability — (1,252 )

Gain on debt extinguishments, net 2,298 —

Other (expense) income, net (9 ) 440

Net loss per share, basic and diluted $ (1.58 ) $ (6.48 )

Weighted-average shares outstanding, basic and diluted 27,365 4,838

The accompanying Notes are an integral part of these financial statements.

F-4

BIODESIX, INC.

Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)

(in thousands)

Shares Amount Shares Amount Capital Deficit (Deficit)

Stock‐based compensation — — — — 3,709 — 3,709

Issuance of common stock under employee stock purchase plan — — 43 — 328 — 328

Stock‐based compensation — — — — 4,944 — 4,944

The accompanying Notes are an integral part of these financial statements.

F-5

BIODESIX, INC.

Statements of Cash Flows

(in thousands)

Year Ended December 31,

Cash flows from operating activities

Depreciation and amortization 3,178 2,903

Amortization of convertible notes debt discount — 4,389

Gain on debt extinguishments, net (2,298 ) —

Stock‐based compensation expense 4,944 3,709

Change in fair value of warrant liability — 1,252

Change in contingent consideration 1,622 818

Provision for doubtful accounts 193 296

Accrued interest, amortization of debt issuance costs and other 2,706 1,418

Changes in operating assets and liabilities:

Other long-term assets and liabilities 875 (1,808 )

Accounts payable and other accrued liabilities (7,425 ) 11,654

Cash flows from investing activities

Purchase of property and equipment (2,241 ) (1,945 )

Patent costs and intangible asset acquisition, net (306 ) (232 )

Payments to acquire Oncimmune assets — (750 )

Cash flows from financing activities

Proceeds from initial public offering — 72,000

Proceeds from the issuance of common stock 16,343 —

Proceeds from issuance of common stock under employee stock purchase plan 328 —

Proceeds from exercise of stock options 769 1,340

Proceeds from issuances of convertible notes payable — 12,955

Proceeds from term loan and notes payable 30,078 3,085

Repayment of term loan and notes payable (45,428 ) —

Payment of debt issuance costs (164 ) —

Equity financing costs (664 ) (8,243 )

Other — (6 )

Cash, cash equivalents, and restricted cash ‐ beginning of period 62,306 5,468

Cash, cash equivalents, and restricted cash ‐ end of period $ 32,798 $ 62,306

The accompanying Notes are an integral part of these financial statements.

F-6

BIODESIX, INC.

Statements of Cash Flows

(in thousands)

(Continued from the previous page)

Supplemental cash flow information:

Year Ended December 31,

Conversion of preferred stock into common stock $ — $ 193,959

Conversion of convertible notes and accrued interest into common stock — 26,616

Reclassification of put option liability to additional paid-in capital — 6,650

Value of put option recorded at issuance of convertible debt payable — 3,389

Reclassification of warrant liability to additional paid-in capital — 1,624

Non-cash debt issuance costs included in Accrued liabilities 15 —

The accompanying Notes are an integral part of these financial statements.

F-7

BIODESIX, INC.

Notes to Financial Statements

Note 1 – Organization and Description of Business

Biodesix, Inc. (the “Company”, “Biodesix”, “we” “us” and “our”), formerly Elston Technologies, Inc., was incorporated in Delaware in 2005. The Company’s headquarters are in Colorado, with laboratories in Colorado and Kansas. The Company conducts all of its operations within a single legal entity. Biodesix is a data-driven diagnostic solutions company leveraging state of the art technologies with its proprietary artificial intelligence platform to discover, develop, and commercialize solutions for clinical unmet needs, with a primary focus in lung disease. In addition to diagnostic tests, the Company provides biopharmaceutical companies with services that include diagnostic research, clinical trial testing, and the discovery, development, and commercialization of companion diagnostics.

The Company performs its blood-based diagnostic tests in its laboratory facilities, which are located in Boulder, Colorado and De Soto, Kansas. In May 2020, the Federal Drug Administration (FDA) granted Emergency Use Authorization (EUA) of the Bio-Rad SARS-CoV-2 Droplet DigitalTM polymerase chain reaction (ddPCR) test to detect Coronavirus Disease 2019 (COVID-19) infection. In April 2020, the FDA authorized the Platelia SARS-CoV-2 Total Ab test to detect COVID-19 antibodies. Medical products that are granted an EUA are only permitted to commercialize their products under the terms and conditions provided in the authorization. The FDA may revoke an EUA where it is determined that the underlying health emergency no longer exists or warrants such authorization, if the conditions for the issuance of the EUA are no longer met, or if other circumstances make revocation appropriate to protect the public health or safety.

Blood-Based Lung Tests

The Company offers five blood-based lung cancer tests across the lung cancer continuum of care:

Diagnosis

•

Nodify XL2® and Nodify CDT® tests, together marketed as part of our Nodify Lung® Nodule Risk Assessment testing strategy, assess the risk of lung cancer to help identify the most appropriate treatment pathway. We believe we are the only company to offer two commercial blood-based tests to help physicians reclassify risk of malignancy in patients with suspicious lung nodules.

Treatment & Monitoring

•

GeneStrat ddPCR® and VeriStrat® tests, marketed as part of our new IQLungTM testing strategy, are used following diagnosis of lung cancer to measure the presence of mutations in the tumor and the state of the patient’s immune system to establish the patient’s prognosis and help guide treatment decisions. The GeneStrat ddPCR tumor profiling test and the VeriStrat immune profiling test have a 36-hour average turnaround time, providing physicians with timely results to facilitate treatment decisions.

•

GeneStrat NGSTM (NGS) test, our 72-hour blood-based NGS test, was launched in November 2021 to a select group of physicians, with national launch in January 2022. The 52-gene panel includes guideline recommended mutations to help physicians treating advanced-stage lung cancer patients identify targeted therapy mutations, such as EGFR, ALK, KRAS, MET, NTRK, ERBB2, and others, and delivers them in an expedited timeframe so patient treatment can begin sooner. The GeneStrat NGS test is marketed as part of the new IQ Lung testing strategy with the GeneStrat ddPCR and VeriStrat tests.

COVID-19 Tests

We operate and have commercialized the Biodesix WorkSafeTM testing program, under which the Company offers three SARS-CoV-2 tests:

•

Bio-Rad SARS-CoV-2 ddPCR test, which is authorized by the FDA to be performed by Clinical Laboratory Improvement Amendments (CLIA) authorized laboratories that perform high complexity tests. The ddPCR test is designed to detect the presence of infection by the SARS-CoV-2 virus.

•

Platelia SARS-CoV-2 Total Ab test, which is an antibody test, authorized by the FDA, intended for detecting a B-cell immune response to SARS-CoV-2, indicating recent or prior infection.

•

cPassTM SARS-CoV-2 Neutralization Antibody test, which is the first blood-based surrogate neutralizing antibody test with FDA EUA and uses ELISA technology to qualitatively detect circulating neutralizing antibodies to the receptor binding domain (RBD) in the spike protein of SARS-CoV-2 that are produced in response to vaccination or a previous SARS-CoV-2 infection. This test was commercially introduced during the second quarter 2021 in partnership with GenScript Biotech Corporation.

F-8

These tests under the Biodesix WorkSafe testing program are utilized by healthcare providers, including hospitals and nursing homes, and are also offered to businesses and educational systems to assist in their back-to-work or back-to-school strategies, a crucial element of restarting economic activity.

In developing the Company's products, the Company has built or gained access to unique biorepositories, proprietary technology, and bioinformatics methods that it believes are important to the development of new targeted therapies, determining clinical trial eligibility and guiding treatment selection. The Company’s testing services are made available through its clinical laboratories.

Initial Public Offering

On October 27, 2020, the Company completed its initial public offering (IPO), in which it issued and sold 4,000,000 shares of its common stock at a public offering price of $18.00 per share. The Company received net proceeds of $63.8 million after deducting underwriting discounts and commissions and offering expenses payable by the Company. In addition, in connection with the IPO, all shares of the Company’s then-outstanding convertible preferred stock and convertible notes payable were automatically converted into 21,939,025 shares of common stock, and all then outstanding warrants to purchase the Company’s Series G convertible preferred stock were automatically converted into warrants to purchase 103,326 shares of the Company’s common stock.

At-the-Money Offering

On December 30, 2021, the Company raised approximately $16.3 million in gross proceeds from the sale of 3,756,994 common shares at a public offering price of $4.35 per share in an at-the-market offering. The Company received net proceeds of $15.7 million after deducting underwriting discounts and commissions and offering expenses payable by the Company. The net proceeds received were used to, among other things, fund the partial repayment of the 2021 Term Loan (see Note 8 - Debt).

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation and Estimates

The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant items subject to such estimates include: revenue recognition; the estimation of the fair value of goodwill and other intangible assets; fair value of stock options; income tax uncertainties, including a valuation allowance for deferred tax assets; and contingencies. The Company bases these estimates on historical and anticipated results, trends, and various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities and recognized revenue and expenses that are not readily apparent from other sources. Actual results could differ from those estimates and assumptions. Certain prior period amounts have been reclassified to conform to the current period presentation.

During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (COVID-19). The COVID-19 pandemic negatively affected, and we expect will continue to negatively affect, our lung diagnostic testing-related revenue and our clinical studies.

As of December 31, 2021, we maintained cash and cash equivalents of $32.7 million and we have $10 million in principal balance outstanding on our 2021 Term Loan. We have incurred significant losses since inception and, as a result, we have funded our operations to date primarily through the sale of common stock in our IPO in October 2020, the issuance of notes payable, and from our two primary revenue sources: (i) diagnostic testing, which include lung diagnostic testing and COVID-19 testing, and (ii) providing biopharmaceutical companies with development and testing services. In accordance with Accounting Standards Update 2014-15 (ASC Topic 205-40), Presentation of Financial Statements - Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, the Company is required to evaluate whether there is substantial doubt about its ability to continue as a going concern each reporting period, including interim periods. In evaluating the Company’s ability to continue as a going concern, management projected its cash flow sources and needs and evaluated the conditions and events that could raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these financial statements were issued. Management considered the Company’s current projections of future cash flows, current financial condition, sources of liquidity and debt obligations for at least one year from the date of issuance of this Form 10-K in considering whether it has the ability to meet its obligations.

Our ability to meet our obligations as they come due may be impacted by our ability to remain compliant with financial covenants in our 2021 Term Loan (see Note 8 – Debt) or to obtain waivers or amendments that impact the related covenants. Due to the continued uncertainty caused by the COVID-19 pandemic, significant risks remain with respect to our ability to meet these thresholds and any material adverse effect on our revenues, income and expenses could impact our ability to maintain compliance with these covenants.

F-9

Based on our current operating plan, unless we raise additional capital (debt or equity) or obtain a waiver from complying with such financial covenants, we expect that we will be unable to maintain our financial covenants under our 2021 Term Loan during the next twelve months, which could result in an Event of Default, as defined, causing an acceleration and repayment of the outstanding balance. We have taken steps to improve our liquidity through raising debt and equity capital during 2021, amendments to our 2021 Term Loan and have also undertaken several proactive measures to mitigate the financial and operational impacts of the COVID-19 pandemic through the reduction of planned capital expenditures and certain operating expenses but we do not expect that these actions alone will be sufficient to maintain our financial covenants. In addition, we have entered into negotiation with certain creditors to modify existing terms of arrangement to delay near term cash requirements and extend the period of payments; however, those negotiations are not final at this time and may not result in final agreement. To maintain an adequate amount of available liquidity and execute our current operating plan, we will need to continue to raise additional funds from external sources, such as through the issuance of equity or debt securities; however, we have not secured such funding at the time of this filing and any such financing activities are subject to market conditions. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders’ rights. There can be no assurance that additional capital will be available to us or, if available, will be available in sufficient amounts or on terms acceptable to us or on a timely basis. If adequate capital resources are not available on a timely basis, we intend to consider limiting our operations substantially. This limitation of operations could include a hiring freeze, reductions in our workforce, reduction in cash compensation, deferring capital expenditures, and reducing other operating costs.

The Company’s revenues, results of operations and cash flows have been materially adversely impacted by the items noted above. Our current operating plan, which is in part determined based on our most recent historical actual results and trends, along with the items noted above, raises substantial doubt about the Company’s ability to continue as a going concern. Our audited financial statements have been prepared assuming we will continue as a going concern and do not include any adjustments that might be necessary should we be unable to continue as a going concern.

Segment Reporting

The Company has a single operating segment focused on providing diagnostic testing services to customers. All of the Company’s revenue and long-lived assets were derived or located in the United States for the years ended December 31, 2021 and 2020.

Revenue Recognition

The Company generates revenues from (i) diagnostic tests and (ii) assay development and testing services (services revenue).

Diagnostic test revenues consist of blood-based lung tests and COVID-19 tests, which are recognized in the amount expected to be received in exchange for diagnostic tests when the diagnostic tests are delivered. The Company determines the transaction price related to its blood-based lung diagnostic test contracts using a portfolio approach by considering the nature of the payer and historical price concessions granted to groups of customers. The transaction price associated with COVID-19 testing arrangements are determined on the basis of the individual contract with each customer.

Services revenue consists of various types of tests or other scientific services for a purpose as defined by any individual customer, which are often larger biopharmaceutical companies, as defined by a written agreement between the Company and the customer. These services are generally completed upon the delivery of testing results, or achievement of contractual milestone(s) as defined in the customer agreements. Revenue for these services is recognized upon delivery of the completed test results, or upon completion of the contractual milestone(s).

The Company recognizes revenues related to blood-based lung diagnostic billings based on estimates of the amounts ultimately expected to be collected from customers on a portfolio approach as discussed above. In determining the amount to accrue for a delivered test, the Company considers factors such as payment history, payer coverage, whether there is a reimbursement contract between the payer and the Company, payment as a percentage of agreed upon rate (if applicable), amount paid per test and any current developments or changes that could impact reimbursement. Variable consideration, if any, is estimated based on an analysis of historical experience and adjusted as better estimates become available. These estimates require significant judgment by management.

The Company also provides services to patients with whom the Company does not have contracts as defined in Financial Accounting Standards Board (FASB) Accounting Standards Codification 606 (ASC 606). The Company recognizes revenue for these patients when contracts, as defined in ASC 606, are established at the amount of consideration to which it expects to be entitled, or when the Company receives substantially all of the consideration subsequent to satisfaction and delivery of the performance obligations.

Deferred revenue consists of payments received for research, development, and testing services fees received prior to the completion of performance of these tests and services.

See Note 11 — Revenue and Accounts Receivable Credit Concentration for additional information.

F-10

Direct Costs and Expenses

The components of our cost of diagnostic tests and testing services consist of cost of materials, direct labor, including bonus, benefit and stock-based compensation, depreciation of laboratory equipment, rent costs, amortization of leasehold improvements and information technology costs associated with acquiring and processing test samples, including sample accessioning, test performance, quality control analyses, charges to collect and transport samples; curation of test results for physicians; and in some cases, license or royalty fees due to third parties.

Royalties for licensed technology are calculated as a percentage of revenues generated using the associated technology and recorded as expense at the time the related revenue is recognized. One-time royalty payments related to signing of license agreements or other milestones, such as issuance of new patents, are amortized to expense over the expected useful life of the patents. Costs associated with performing tests are expensed as the test is processed regardless of whether and when revenue is recognized with respect to that test.

Research and Development Expenses

Research and development expenses include external and internal costs incurred to develop our technology, collect clinical samples, and conduct clinical studies to develop and support our products. External costs consist primarily of payments to clinical trial sites, sample acquisition costs and laboratory supplies purchased in connection with the Company’s discovery and preclinical activities, process development and clinical development activities. Internal costs consist primarily of salaries and benefits, reagents and supplies used in research and development laboratory work, infrastructure expenses, including allocated facility occupancy and information technology costs.

The Company estimates and accrues its expenses resulting from its obligations under contracts with vendors and consultants in connection with conducting research and development activities. The financial terms of these contracts vary from contract to contract and may result in payments that do not match the periods over which materials or services are provided under such contracts. The Company’s estimates depend on the timeliness and accuracy of the data provided by consultants and vendors regarding the status of each activity. The Company periodically evaluates the estimates to determine if adjustments are necessary or appropriate based on information received. Research and development costs are expensed as incurred.

Sales, Marketing, General and Administrative Expenses

Selling expenses consist primarily of costs associated with our sales organization, including our direct sales force and sales management, client services, marketing, and reimbursement, as well as business development personnel who are focused on our biopharmaceutical customers. These expenses consist primarily of salaries, commissions, bonuses, employee benefits, travel, and stock-based compensation, as well as marketing and educational activities and allocated overhead expenses.

Sales, marketing, general and administrative expenses also include costs for our marketing and sales organizations, and other functions including finance, legal, human resources, and information technology.

These expenses consist principally of salaries, bonuses, employee benefits, travel, stock-based compensation, as well as professional services fees such as consulting, audit, tax and legal fees, and general corporate costs and allocated overhead expenses.

Concentrations of Credit Risk and Other Uncertainties

Substantially all of the Company’s cash and cash equivalents are deposited with two major financial institutions in the United States. The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it holds cash. Periodically throughout the year, the Company has maintained balances in various operating accounts in excess of federally insured limits. The Company has not experienced any losses on its deposits of cash and cash equivalents.

Several of the components of the Company's sample collection kit and test reagents, and certain test systems and related test kits are obtained from single-source suppliers. If these single-source suppliers fail to satisfy the Company's requirements on a timely basis, it could suffer delays in being able to deliver its diagnostic solutions, a possible loss of revenue, or incur higher costs, any of which could adversely affect its operating results.

For a discussion of credit risk concentration of accounts receivable as of December 31, 2021 and 2020, see Note 11 – Revenue and Accounts Receivable Credit Concentration.

Cash and Cash Equivalents

Cash equivalents consist of short-term, highly-liquid instruments with an original maturity of three months or less from the date of purchase.

Restricted Cash

Restricted cash consists of deposits related to the Company’s corporate credit card and a letter of credit related to an operating lease agreement. As of December 31, 2021 and 2020, the Company had $0.1 million and $0.2 million restricted cash, respectively, which was included in ‘Other current assets’ in the accompanying balance sheets.

F-11

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are stated at the amount management expects to collect from customers based on their outstanding invoices. Management reviews accounts receivable quarterly to determine if any receivable will potentially be uncollectible and to estimate the amount of allowance for doubtful accounts necessary to reduce accounts receivable to its estimated net realizable value based on historical experience, customer creditworthiness, facts, and circumstances specific to outstanding balances, and payment terms.

Inventory

Inventory consists primarily of material supplies, which are consumed in the performance of testing services and charged to 'Direct costs and expenses'. Inventory is stated at cost and reported within ‘Other current assets’ in the balance sheet and were $2.9 million and $3.2 million as of December 31, 2021 and 2020, respectively.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally between three and five years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the term of the lease. Maintenance and repairs are charged to expense as incurred, and improvements and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in the statements of operations in the period realized.

Long-lived assets to be held and used are evaluated for impairment when events or circumstances indicate the carrying value of a long-lived asset or asset group is less than the undiscounted cash flows from the use and eventual disposition over its remaining useful life. The Company assesses recoverability by comparing the sum or projected undiscounted cash flows from the use and eventual disposition of the asset or asset group to its carrying value, and records an impairment loss if the carrying value is greater than the undiscounted future cash flows. There were no impairments for the years ended December 31, 2021 and 2020.

Intangible Assets

Intangible assets primarily consist of intangible assets acquired as part of business combinations, external costs associated with patent applications that are probable of future economic benefits, and trademark costs. Finite-lived intangibles are stated at cost, net of accumulated amortization. The Company amortizes finite-lived intangible assets using the straight-line method over their estimated useful lives of 9 to 10 years, based on management's estimate of the period over which their economic benefits will be realized, product life and patent life. Trademarks are considered indefinite lived and are not amortized.

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate a reduction to fair value below their carrying amounts. There were no impairments for the years ended December 31, 2021 and 2020.

Goodwill

Goodwill represents the excess of purchase price over amounts allocated to acquired assets and liabilities assumed in business combinations. The carrying value of goodwill is evaluated for impairment at least annually or more frequently when events or circumstances occur indicate a potential for impairment. The annual impairment test is performed on the last day of our fourth quarter. Prior to performing a quantitative evaluation, an assessment of qualitative factors may be performed to determine whether it is more likely than not that the fair value of the reporting unit exceeds its carrying value. In the event the Company determines that it is more likely than not the carrying value of our single reporting unit is higher than its estimated fair value, quantitative testing is performed comparing recorded values to estimated fair values. If impairment is present, the impairment loss is measured as the excess of the recorded goodwill over its implied fair value. Through December 31, 2021, there were no accumulated impairment losses.

Fair Value of Financial Instruments

U.S. GAAP for fair value establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach). We utilize a combination of market and income approaches to value our financial instruments. Our financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. Fair value measurements are categorized within the fair value hierarchy based upon the lowest level of the most significant inputs used to determine fair value. The three levels of the hierarchy and the related inputs are as follows:

Level Inputs

2 Unadjusted quoted prices in active markets for similar assets and liabilities;

Inputs other than quoted prices that are observable for the asset or liability.

3 Unobservable inputs for the asset or liability.

F-12

The carrying amounts of certain financial instruments including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities approximate fair value due to their relatively short maturities.

See Note 4 — Fair Value for further discussion related to estimated fair value measurements.

Contingent Consideration

In connection with the purchase transaction with Integrated Diagnostics, Inc. (Indi), the Company recorded contingent consideration for amounts potentially payable to Indi’s shareholder upon attainment of a three-consecutive month gross margin target of $2.0 million within the seven-year period after the acquisition date. The fair value of contingent consideration is assessed at each balance sheet date and changes, if any, to the fair value through the date the gross margin target was met is recorded as operating expenses in the statements of operations. Subsequent changes to the contingent consideration following the achievement of the gross margin target are recorded as ‘Interest expense’ in the statements of operations resulting from the passage of time and fixed payment schedule. The significant unobservable inputs used in the measurement of fair value include the probability of successful achievement of the specified product gross margin targets, the period in which the targets were expected to be achieved, and discount rates which ranged from 11% to 13.5%. As a result of the achievement of the gross margin target, the only significant unobservable input used in the measurement of fair value includes the discount rate since all other inputs became fixed and determinable. Significant increases or decreases in the discount rate would result in a significantly higher or lower fair value measurement.

Warrant Liability

Prior to the completion of the Company’s IPO in October 2020, certain warrants issued to purchase convertible preferred stock were classified as liabilities with changes in the estimated fair value of these liabilities recognized in our results of operations. Upon completion of the Company’s IPO in October 2020, the warrants were automatically converted to warrants to purchase common stock. Accordingly, the warrants were remeasured to an estimate of fair value and recognized in our results of operations and then reclassified to additional paid-in capital.

Put Option Liability

During 2020 and 2019, the Company issued convertible debt with terms that provided for a conversion rate to the convertible debtholders that was more favorable than the price that other investors would pay for common stock in certain situations, including the completion of an IPO. As a result, the convertible debt is a financial instrument that was bifurcated into two instruments, a debt obligation and a put option liability, which represented the estimated fair value of the favorable conversion rate. The estimated fair value of the put option liability was separated from the convertible debt at inception and reported as a liability and debt discount, and amortized to interest expense. As a result of our IPO, the convertible debt was automatically converted to common stock and the put option liability was remeasured to an estimate of fair value and recognized in our results of operations and then reclassified to additional paid-in capital.

Share‐Based Compensation

Stock Options

The Company grants service condition and performance condition stock options. Stock options are granted with exercise prices equal to the fair market value of our common stock on the date of grant. The grant date fair value of each employee stock option is estimated on the date of grant using the Black-Scholes option-pricing model, which requires the use of assumptions, including the expected term of the option, expected volatility of our stock price, expected dividend yield, and the risk-free interest rate, among others. We estimate forfeitures and adjust these estimates to actual forfeitures as they occur. These assumptions involve inherent uncertainties including market conditions and employee behavior that are generally outside of the Company’s control. Service condition stock options are expensed based on the grant date fair value of the awards using the straight-line method over the requisite service period. Performance-condition stock options vest based on achievement of multiple weighted performance goals, certification of performance achievement by the Compensation Committee of the Board of Directors, and continued service. For performance-condition stock options, compensation expense is updated for our expected performance level against performance goals at the end of each reporting period, which involves judgment as to achievement of certain performance metrics.

Restricted Stock Units (RSUs)

The Company grants service-condition RSUs. As a result of our IPO, the grant date fair values of these RSUs are based on the closing market price of our common stock on the grant date. We estimate forfeitures and adjust these estimates to actual forfeitures as they occur. The service-condition RSUs vest based on continued service with compensation expense recognized on a straight-line basis over the requisite service period.

See Note 12 — Share-Based Compensation for additional information related to share-based compensation.

Net Loss per Common Share

Basic net loss per common share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period, without consideration of common stock equivalents. Diluted net loss per common share is computed by dividing net

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loss by the weighted-average number of common share equivalents outstanding for the period, if dilutive, using the treasury stock method. Potentially dilutive securities consisting of options to purchase common stock, warrants to purchase common stock, RSUs and shares subject to purchase under our employee stock purchase plan were excluded from the calculation of diluted net loss per common share because their effect would be anti-dilutive for all periods presented.

Until the Company’s IPO in October 2020, basic and diluted net loss attributable to common stockholders per share was calculated using the two-class method. The net loss was attributable entirely to common stockholders because the participating securities did not have a contractual obligation to share in the Company’s losses. As the Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for all periods presented.

Note 3 – Recent Accounting Pronouncements

Recently Issued Accounting Standards Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02, Leases (ASC Topic 842). The new guidance maintains two classifications of leases: finance leases, which replace capital leases, and operating leases. Lessees will need to recognize a right-of-use asset and a lease liability on the balance sheet for those leases previously classified as operating leases under the old guidance. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for direct costs. The accounting standard will be effective for the Company beginning January 1, 2022. Based on our current analysis we expect the adoption to result in the recognition of approximately $1.5 million of right of use assets and associated lease liabilities, inclusive of both lease and non-lease components, in our balance sheet and do not expect any material impact to our statement of operations or statement of cash flows. We are implementing new processes and internal controls over lease recognition, which will ultimately assist in the application of the new lease standard.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU requires measurement and recognition of expected credit losses for financial assets. This guidance will become effective for the Company beginning January 1, 2023 with early adoption permitted. The Company is currently evaluating this guidance and assessing the overall impact on its financial statements.

Note 4 - Fair Value

Recurring Fair Value Measurements

Our borrowing instruments are recorded at their carrying values in the balance sheets, which may differ from their respective fair values. The fair values of outstanding borrowings, which are classified as Level 2, approximate their carrying values as of December 31, 2021 and 2020, based on interest rates currently available for similar borrowings and were (in thousands):

As of December 31,

Carrying Value Fair Value Carrying Value Fair Value

The financial liabilities that are measured and recorded at estimated fair value on a recurring basis consist of our contingent consideration associated with our acquisition of Indi, and prior to the completion of our IPO in October 2020, the warrant liability, put option liability and contingent value rights granted to certain holders of our convertible preferred stock and debt instruments, which were accounted for as liabilities and remeasured through our statements of operations. The table below presents the reported fair values of contingent consideration, which is classified as Level 3 in the fair value hierarchy, as of the dates indicated (in thousands):

As of December 31,

Current portion of contingent consideration $ 17,764 $ —

The following table presents the changes in contingent consideration for the year ended December 31, 2021 (in thousands):

Year Ended

Level 3 Rollforward December 31, 2021

Changes in fair value 1,622

Interest expense 2,238

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The following table presents the changes in these financial liabilities for the year ended December 31, 2020 (in thousands):

For the Year Ended December 31, 2020

Additions — 3,389 — —

Reclassified to additional paid-in capital — (6,650 ) (1,624 ) —

Ending balances - December 31, 2020 $ 29,932 $ — $ — $ —

Contingent Consideration

In connection with the acquisition of Indi in 2018, the Company recorded contingent consideration for amounts contingently payable to Indi's selling shareholders pursuant to the terms of the asset purchase agreement (Indi APA). The contingent consideration arrangement requires additional consideration to be paid by the Company to Indi upon attainment of a three-consecutive month gross margin target of $2.0 million within the seven-year period after the acquisition date. Under the terms of the agreement, when the gross margin target was met the Company was required to issue 2,520,108 shares of common stock. For the six months following the achievement of the gross margin target, Indi had the option to require the Company to redeem these common shares for $37.0 million in cash over eight equal quarterly installments. If Indi elected to not exercise its option, the Company had 12 months to repurchase the common stock in two equal and consecutive quarterly cash installments totaling $37.0 million.

The Company met the gross margin target of $2.0 million for three consecutive months during the three months ended June 30, 2021. The Company entered into an amendment to the original agreement in August 2021 in which all parties agreed to forgo the issuance of common stock and agreed that the Company will in lieu thereof make six quarterly installments of approximately $4.6 million beginning in January 2022 and a final payment of approximately $9.3 million in July 2023 for a total of $37.0 million. The aggregate amount of payments owed by the Company under this amendment is the same as if Indi had exercised the put right or the Company had exercised the call right provided for in the original agreement. Our ability to make these payments are subject to consent from our lender under the 2021 Term Loan and related amendments (see Note 8 - Debt). We obtained consent and subsequently made the first milestone payment of $4.6 million in January 2022 and we are in discussions with our lender to obtain consents for future payments.

The significant unobservable inputs used in the measurement of fair value include the probability of successful achievement of the specified product gross margin targets, the period in which the targets were expected to be achieved, and discount rates which ranged from 11% to 13.5%. As a result of the achievement of the gross margin target, the only significant unobservable input used in the measurement of fair value includes the discount rate since all other inputs became fixed and determinable. Significant increases or decreases in the discount rate would result in a significantly higher or lower fair value measurement.

Contingent consideration expected to be paid in the next twelve months is recorded in the balance sheets as ‘Current portion of contingent consideration’ while the remaining amount to be paid is recorded as ‘Contingent consideration’ within non-current liabilities. The net change to contingent consideration through the date the gross margin target was met is recorded as operating expenses in the statements of operations. Subsequent changes to the contingent consideration following the achievement of the gross margin target are recorded as ‘Interest expense’ in the statements of operations resulting from the passage of time and fixed payment schedule. The net change to contingent consideration recorded as operating expenses during the years ended December 31, 2021 and 2020 was a loss of $1.6 million and $0.8 million, respectively. The amount recorded as ‘Interest expense’ during the year ended December 31, 2021 was $2.2 million.

Put Option Liability

The put option liability was valued based on the calculated returns as a result of the various discounts included in the Company’s convertible notes payable and the related probability assessments of the various settlement scenarios. During 2020, the Company recognized an addition to the put option liability of $3.4 million in connection with a favorable conversion rate granted to holders of issued convertible debt. The put option liability was settled upon the closing of the Company’s IPO in October 2020 and reclassified to additional paid-in capital.

Warrant Liability

In connection with entering into the 2018 Notes, the Company issued to the lender a warrant to purchase 613,333 shares of Series G convertible preferred stock, at an exercise price of $0.75 per share, subject to adjustment upon specified dilutive issuances. The warrant was immediately exercisable upon issuance and expires on February 23, 2028. The estimated fair value of the warrant on the issuance date of $0.3 million was recorded as a debt discount and as a preferred stock warrant liability. Through the effective date of the Company’s IPO, the Series G warrants were remeasured to an estimate of fair value using a Black Scholes pricing model. As a result of the Company’s IPO, the preferred stock warrants were automatically converted to warrants to purchase 103,326 shares of common stock with a weighted average exercise price of $4.46 and were also transferred to additional paid-in capital. During 2020, the Company recorded an increase in the value of the warrant liability of $1.3 million.

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Contingent Value Rights

In addition to the shares of Series F Preferred Stock that were issued in January 2016, investors who purchased more than their pro‐rata amount in the financing described above received a calculated number of contingent value rights (CVRs). In connection with the Series F financing, the Company issued 3,999 CVRs originally valued at $0.5 million. One CVR represents 0.00375% of the Company’s interest in the drug ficlatuzumab. The initial estimated value of the CVRs were recorded as a liability and as a reduction to the Series F proceeds. Upon receipt by the Company or a milestone, royalty, or any other type of payment from the Company’s ownership rights in the drug, the Company was required to make a cash payment to the CVR holders equal to 15% of net proceeds, as defined. In September 2020, the Company exercised its opt-out right with AVEO Oncology (AVEO) for the payment of 50% of development and regulatory costs for ficlatuzumab. As a result, the CVRs were settled effective December 2, 2020. See Note 15 – Commitments and Contingencies for a discussion of the Co-Development Agreement with AVEO.

Non-Financial Assets and Liabilities

Our non-financial assets, which primarily consist of property and equipment, goodwill, and other intangible assets, are not required to be carried at fair value on a recurring basis and are reported at carrying value. There were no changes to the valuation methods during the periods presented.

Note 5 – Property and Equipment

Property and equipment consist of the following (in thousands):

As of December 31,

Vehicles 97 —

Construction in process 17 381

Less accumulated depreciation (6,749 ) (6,724 )

Total property and equipment, net $ 4,179 $ 3,178

Depreciation expense related to property and equipment was:

Year Ended December 31,

Direct costs and expenses $ 614 $ 361

Selling, marketing, general and administrative 614 478

Note 6 – Goodwill and Intangible Assets

Intangible assets, excluding goodwill, consist of the following (in thousands):

Intangible assets subject to amortization

Intangible assets not subject to amortization

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Amortization expense related to definite-lived intangible assets was (in thousands):

Year Ended December 31,

Direct costs and expenses $ 5 $ 13

Sales, marketing, general and administrative 1,945 2,051

Future estimated amortization expense of intangible assets is (in thousands):

Note 7 – Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

As of December 31,

Compensation related accruals $ 4,029 $ 3,975

Accrued clinical trial expense 870 715

Total accrued liabilities $ 7,665 $ 7,789

Note 8 – Debt

Our long-term debt consists of notes payable associated with our 2021 Term Loan, 2018 Notes and Paycheck Protection Program, each of which is described in further detail below. Long-term notes payable were as follows (in thousands):

As of December 31,

Paycheck Protection Program — 3,107

Unamortized debt discount and debt issuance costs (63 ) (313 )

2021 Term Loan

On March 19, 2021 (Effective Date), the Company entered into a Loan and Security Agreement (the 2021 Term Loan) by and between Silicon Valley Bank (SVB or Lender) and the Company, as borrower, whereby subject to the terms and conditions of the 2021 Term Loan, SVB advanced to the Company an original principal amount of $30 million.

The 2021 Term Loan provides for an “interest-only” period from the Effective Date through February 28, 2023, with interest due and payable monthly on the first calendar day of each month. However, the Company achieved a revenue milestone of at least $65 million on a trailing twelve-month basis during the three months ended March 31, 2021 which automatically extended the interest-only period through February 28, 2024. Beginning on the first calendar day of the month following the end of the interest-only period, the 2021 Term Loan shall be payable in (i) consecutive equal installments of principal through March 1, 2026, plus (ii) monthly payments of accrued interest. The principal amount outstanding under the 2021 Term Loan shall accrue interest at a floating per annum rate equal to the greater of (i) 2.00% above the prime rate, or (ii) 5.25%, which interest, in each case, shall be payable monthly. Changes to the interest rate applicable to the 2021 Term Loan based on changes to the prime rate shall be effective on the effective date of any change to the prime rate.

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The Company’s final payment, due at maturity on March 1, 2026, shall include all outstanding principal and accrued and unpaid interest, lender fees and expenses, of which the majority will include a final payment of $2.7 million, and all other sums, if any, that shall have become due and payable hereunder with respect to the 2021 Term Loan. The $2.7 million final payment will be amortized as interest expense over the term of the 2021 Term Loan. The Company has the option to prepay, prior to maturity, the total outstanding principal amount plus accrued and unpaid interest, subject to a prepayment penalty of 3% of the principal amount if paid prior to the first anniversary of the Effective Date, 2% of the principal amount if paid on or after the first anniversary but prior to the second anniversary of the Effective Date, 1% of the principal amount if paid on or after the second anniversary but prior to October 19, 2025, and 0% thereafter.

The Company granted the Lender a security interest in substantially all of the Company’s assets. The 2021 Term Loan requires the Company to comply with a minimum liquidity ratio covenant (as defined) by the 2021 Term Loan of not less than 0.95 to 1.00, and has a trailing six month rolling minimum revenue requirement of not less than 70% of the Company’s projected revenue performed at the end of each reporting period. On September 30, 2021, we entered into the Consent and First Amendment to Loan and Security Agreement (First Amendment) to, among other things, amend our 2021 Term Loan to eliminate the revenue covenant for the period ended September 30, 2021 and modify the revenue covenant threshold for the three month period ended December 31, 2021. In addition, we agreed to establish a restricted cash collateral account for $15 million for the benefit of our lender if the balance of our cash and cash equivalents declines below $40 million. On December 31, 2021, we entered into the Consent and Second Amendment to Loan and Security Agreement (Second Amendment) to, among other things, amend our 2021 Term Loan and First Amendment to obtain consent for the $4.6 million January 2022 milestone payment under the Indi APA, repay $20 million in outstanding principal on December 31, 2021, waive the $600,000 prepayment fee on the $20 million Term Loan repayment, and waive the minimum revenue covenant as of December 31, 2021 and modify the minimum revenue requirement to not less 75% for the three months ended March 31, 2022 and not less than 75% on a trailing six month rolling basis for each quarter thereafter of the Company’s projected revenue performed at the end of each reporting period. The Lender agreed to apply the full amount of funds previously established within the restricted cash collateral account to partially prepay the $20 million in outstanding principal, thereby eliminating the restricted cash collateral account. The Company recorded a loss on extinguishment of $0.1 million resulting from the write-off of debt issuance costs associated with the $20 million repayment of our 2021 Term Loan.

The 2021 Term Loan contains certain covenants limiting the ability of the Company to, among other things, incur future debt, transfer assets except for the ordinary course of business, make acquisitions, pay dividends or make other certain restricted payments, or sell assets, subject to certain exceptions, without the prior written consent of the Lender. Failure to comply with the covenants and loan requirements may result in an event of default. As of December 31, 2021, the Company was in compliance with all restrictive and financial covenants associated with its borrowings. In the event of a default, including, among other things, our failure to make any payment when due or our failure to comply with any covenant under the 2021 Term Loan, the Lender may elect to declare all amounts outstanding to be immediately due and payable, and may proceed against the collateral granted to them to secure such indebtedness, including a royalty-free license or other right to use all of our intellectual property without charge.

2018 Notes

In February 2018, the Company issued long-term debt of $23.0 million to Innovatus Life Sciences Lending Fund (Innovatus or Lender) (the 2018 Notes). Innovatus is also a holder of the Company’s common stock.

At the time of issuance, the Company paid a facility fee of $0.2 million and issued a warrant to Innovatus, with an initial estimated fair value of $0.3 million, for the purchase of 613,333 shares of Series G preferred stock. The facility fee and the estimated warrant fair value were recorded as debt discount and is amortized to interest expense over the term of the 2018 Notes. The 2018 Notes bore annual interest at 10%, of which 7.5% was payable in cash, with the remaining 2.5% added to principal through December 31, 2020. Total interest added to principal was $1.7 million as of March 31, 2021 and December 31, 2020.

On March 19, 2021, in connection with entering into the 2021 Term Loan agreement with SVB, the Company repaid all outstanding principal, accrued and unpaid interest, and prepayment fees in the amount of $25.9 million due under the 2018 Notes and contemporaneously terminated the related Loan and Security Agreement, dated as of February 23, 2018, as amended, between Innovatus and the Company. As a result of the extinguishment of the 2018 Notes, the Company recognized a loss on debt extinguishment of $0.7 million during the three months ended March 31, 2021.

Paycheck Protection Program Note Payable

In April 2020, the Company entered into a loan pursuant to the Paycheck Protection Program under the CARES Act, as administered by the U.S. Small Business Administration (the SBA). The loan, in the principal amount of $3.1 million (the PPP Loan), was disbursed by JPMorgan Chase Bank (JPM) pursuant to a Paycheck Protection Program Promissory Note and Agreement (the Note and Agreement).

The PPP Loan had a maturity date on the two-year anniversary of the funding date, April 2022, and included a fixed rate of 1.00% per annum. Monthly principal and interest payments, less the amount of any potential forgiveness (as discussed below), were scheduled to commence in September 2021. The Company did not provide any collateral or guarantees in connection with the PPP Loan, nor did the

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Company pay any facility charge to obtain the PPP Loan. The Note and Agreement contained customary events of default, including those relating to failure to make payment, bankruptcy, breaches of representations and material adverse effects.

All or a portion of the PPP Loan may be forgiven by the SBA upon application by the Company. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, and covered utilities during the eight-week period beginning on the approval date of the PPP Loan. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee earning more than $100,000, prorated annually. Not more than 40% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. During the second quarter of 2021, the Company determined that it would apply for forgiveness under the SBA’s Loan Forgiveness program, a change from its previous intent to repay. Subsequently, in July 2021 the Company applied for loan forgiveness and on August 17, 2021, the Company received legal release and formal notification that the PPP Loan was forgiven in full. During the three months ended September 30, 2021, the Company reduced the ‘Current portion of notes payable’ and recorded a gain on extinguishment in the statements of operations for the $3.1 million forgiven.